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Business Ethics (Sep 2011)

Compiled for SIBM by P.B.Varadharajan Chavi IT Services Pvt Ltd Number of words: 1130 reading Time : Appox: 6 minutes

A) Understanding Business Ethics

1) What is Ethics
= Ethics,

also known as moral philosophy, is a branch

of philosophy that addresses aspects of morality that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc. (Wikipedia). This is in popular realm in a society that one lives before it is codified as laws. Mostly it is self regulated and observance is assumed by common consent. A violation is viewed as bad behavior.

2) Jurisprudence is about official laws (legal) with reference to specific topics along with their compliance procedure. Mostly it is documented with a public access providing punishments for violation. It is administered by a court of Justice presided by a judge. A violation may result in punishment if one is prosecuted and found to be guilty. 3) Business ethics refers to matters concerning behaviour in business and commercial situations. While in general in agreement with social norms, the special feature in mercantile ethics is Caveat emptor (Buyers Beware) . Business itself is rule driven. The benefit in business is between what one starts with and ends up with. So it encourages transactions. The simple test is long term continuitywhat happens what if everyone follows the practice all the time- if the system is sustained, it is good, if it damages the system, it is bad.

B) Major theories (from Business Ethics- Marianne Jennings)

4) Divine Command theory : This is based on religious beliefs such as Shoura in Islam, Dharma in Hinduism, Biblical in Christianity and Ten commandments in Judaism. While they are proclaimed by some men who act as Prophets, the laws are supposed to have originated from God and hence are considered as divine. Related to it, Deontological theory also focuses on duties, obligations and principles of whats right such as honesty, fairness, loyalty, justice, compassion etc. As per this approach, certain moral principles are binding irrespective of consequences.

5) Ethical Egoism theory holds we all act in our own self interest but limit our judgement to ourselves and not others. As per Adam Smith humans are rational and understand that fraud is no ones self interest. He also believed that long term self-interest keeps business running ethically and chaos occurs for limited periods.

6) Utilitarian theory says that we act for Greatest happiness for most principle. Ethical dilemmas requires balancing act where we minmize the harm and maximize the benefits. This may also be classified as Teleological Consequentialist.

7) Immanuel Kants theory of Categorical imperatives specifies that we cannot use others in a way that gives you one sided benefit. Both means and ends matter; you not only have to be fair but also do it for the right reasons. 8) Contractarians theory assumes putting the rules into place via a social contract assuming that absence of such an arrangement would be chaos. 9) Rights theory or entitlement theory holds that all humans have a set of rights and role of government is to protect those rights. 10) Moral relativists theory believes in time & Place of ethics, depending on context. Every person regards his or her purpose as good according to his or her own criteria. Without Freedom and well being one cannot pursue those things which one values. So for Rational consistency a person must acknowledge that he/she is a purposive being and that the pursuit of his/her ends requires freedom and well being. 11) As per Aristotle and Plato one must receive a proper upbringing in moral conduct. This assumes that individuals are affected by their environment and impressionable when they are young. He also says that Practical wisdom comes from experience as well as academics. This needs training and right orientation. However this may end up being self-righteous.

C) Practice of Business Ethics

12) US Department of Commerce issued in 1995 Model Business Principles as guideline for business conduct. This includes Safe workplace, fair employment practices, environmental protection, compliance with laws, and Leadership to instil a corporate culture that accommodates free speech in the context of legitimate business concerns.

13) Ethics in Functional Areas of Management: This is the major area where Management professionals actually encounter ethical dilemmas most in their career. i) - Marketing: Relates to Marketing & sales areas. E.g. AMA (American Marketing Association) has a code of Ethics for its members. This deals with consumers and trade promotions via distribution channel as well as advertising. ii) - HRM: Human relations management is a constant area of friction and ethical dilemmas as practises vary in different companies and industries. About a third of ethical problems in most companies originate here.

iii) -FIN & A/C Financial area is generally more specific with respect to rules and procedures. It is also more regulated. Since it involves cash and asset management, need for personal integrity is higher iv) -Prod & Ops Mgmt This area needs to be environmentally conscious and also adopt safety and security policies to protect labor on shop floor. This is a high priority area for manufacturing and construction companies v) -Ethics in Global Business Here there is need for standard international practises such as due diligence and proper agreements specifying areas of jurisdiction. The quality of ethics will determine the flow of FDI (Foreign Direct Investment)

D) The Indian scenario

14) BT (Business Today) conducted a survey in July-Aug 1995 on CEOs of both Indian & MNC on the Ethical aspects of Indian Corporate sector. The major findings were: a) 62% of all CEOs agreed that difference in ethical benchmarks between India & West are caused by a divergence of fundamentals. (i.e. India has built in ethical deficit). This is reinforced when 71% of MNC CEOs and 47% of Indian CEOs thought that Indian business ethical standards were lower than those prevalent globally. b) Both Indian & MNC CEOs agreed on 3 factors responsible for poor corporate ethics. i) Systematic corruption ii) Poor law implementation iii) License Raj 15) S.K.Chakraborty in a study of Indian Managers in 1991 (Management by Values- OUP) found that a majority (70%) had weak values but strong skills. Source: Ethics in Business- Anand Das Gupta

7 E) Global

Emphasis on Intellectual Property Rights:

16) This is an area where there is special interest from advanced economies (OECD) directed towards Emerging economies (EE) particularly such as China, India and Asia that now are enjoying higher growth rates of economy compared to OECD. This applies in particular to: i) Trade marks ii) Copy rights iii) Patents iv) Industrial designs and v) Geographical Indicators. This is one area where there is more emphasis from OECD on EE as it is viewed as future income generating based on past investments. This may be most lucrative area in Business Ethics for practising professionals.